Managing Our Greatest Financial Asset

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A market, by its simplest definition is a place where items of value are exchanged. There are many markets, some we see in a very tangible way, the store we walk into, the stock market report on the evening news and some we do not see, like the market each and every person is in; the labour market. We seldom talk about employment as a marketplace. Why? Because as polite, civilized people where we are all equally ‘special’, we don’t like to consider that we exchange our input (time, efforts and skills) for a monetary value that dictates in so many ways the quality of our lives. Instead we have occupations and spend our lives occupied!

What matters most to your employer is your output. If your superb and satisfying input produces output with little tradable value, then money simply will not flow in your favour (as I write this I’m becoming very aware of my manager over my right shoulder that will make a judgment on this piece of writing later today). The efficiency of this output is called production, which as we have established has a tradable value, your income, which when optimized provides value to you and to your employer. It is this production is our greatest financial asset.

Finding the value of human production has been the cause of great interest, great angst and almost every civil war. Academics have tried to define it, corporations have tried skewing it in their favour and politicians seek to control and create standards which work towards their interests (which is us or the corporations depending on the situation). The important thing is though we all know what our income is, do we really understand our own personal productivity, and how do we measure our own greatest financial asset and increase its value?

As individuals we work very much like any other financial asset; property, stocks, bonds, currency or superannuation. We invest our money in these assets, sending them off to work in the hope of seeing more money return at some stage. Labour is the same, we invest in our education and jobs to gain experience and we hope to earn a certain level of income at a certain point in the future. All these assets can be broken down into four areas:

1. Our yield or rate of return
2. Our risk
3. Our cash flow and
4. Our liquidity

Rate of Return: When you went to university or trade school or into the workforce why did you do it? Were you motivated by earning money now or study to earn more later? Did you consider this process as an investment in yourself? All these positions are compromises; no-one has a crystal ball for the future. It’s true you don’t need an MBA to run a global business but Sir Richard Branson employs plenty of people with them! To be blunt, knowledge matters, and yes its best tempered by experience but after years in the workforce if your personal rate of return is less than what you hoped for initially, investing in a new skill that can be traded in a market might be a good place to start.

Risk: The international definition of risk has changed. No longer is risk defined as the likelihood of a negative outcome. In 2009 the definition was broadened to reflect a changing appetite for risk and its subsequent rewards. I will do an article in the next few weeks on risk from an anthropological perspective, but importantly risk is cultural! Our ability to deal with uncertainty is not something we arrive at individually it is one we do collectively; so be very wary of any entity who decides to tell you what ‘risks’ you should not take. They have as much of a vested financial interest in you as the entities that are telling you to take on more risk!

Cash Flow: Our personal cash flow is the one which we are probably the most aware, every week, fortnight or month our income comes in. If you have the option to change your wage between these time scales then experiment, because how you budget can have a real effect on your financial health.

Liquidity: This is a measure of the speed an asset can be converted to cash. As property cannot be easily turned to cash it is not considered liquid, funds in a brokers account is the opposite. But what’s your personal liquidity? You know how much time you spend working for cash? If there was a way you could create more cash from less time wouldn’t you take it? Do you have friends who earn a comparable income in less time? What are they doing that you are not?

All of this is traded off against risk. The less risk the less reward and conversely also. In the financial services industries asset managers are also called risk managers because there is a direct correlation between the two. Risk managers balance rate of return, against risk, against cash flow, and against liquidity in order to produce value in their portfolio. We could all put some resources into managing our greatest financial asset, and there are plenty of people who sell advice, remember every institution will have a bias and independent advisers will have too. That’s by no means a suggestion not to use them, just a word of caution. In closing, perhaps some personal study in risk and asset management is in order so we can get more value from ourselves, our greatest financial asset.

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